Newalta Issues Update to Financial Forcast
CALGARY, ALBERTA-- Newalta Income Fund ("Newalta") (TSE:NAL) is
issuing an update to its financial forecast for the year ended
December 31, 2002 as a result of changes in the following
assumptions contained in the previous financial forecast of
Newalta dated May 15, 2001: (i) the decrease in crude oil prices;
(ii) the increase in heavy oil netbacks; (iii) the acquisition of
Anadime Corporation in August 2001; (iv) the adoption of new
accounting principles resulting in no amortization of goodwill;
(v) the reduction in capital expenditures; (vi) the effects of a
negotiated credit agreement; (vii) the effects of stock
compensation; and (viii) the effects of the recently announced
equity financing.
Newalta has concurrently withdrawn the financial forecast for the
year ended December 31, 2002 and dated May 15, 2001.
Updated Financial Forecast
The following updated forecast statements were prepared by
management of Newalta using assumptions with an effective date of
March 14, 2002. The updated forecast reflects management's
judgment as of March 14, 2002 of the planned course of action of
Newalta for the year ending December 31, 2002.
Some assumptions, although considered reasonable at the time, may
prove to be incorrect. Readers are cautioned that the forecast is
based on assumptions as to many factors, including commodity
prices and volumes, and there is a risk that the actual results
achieved during the forecast period may vary from the forecast
results and the variation may be material. There is no guarantee
that the forecasted results will be achieved in whole or in part.
The updated forecast has been prepared in accordance with
generally accepted accounting principles as outlined in the
accounting recommendations issued by the Canadian Institute of
Chartered Accountants and regulatory requirements relating to the
presentation and disclosure of forecasts.
The financial report issued by Newalta during the forecast period
will contain either a statement that there are no significant
changes to be made to the forecast, or an updated forecast
accompanied by explanations of significant changes.
AUDITORS' REPORT ON UPDATED FINANCIAL FORECAST
To the Board of Directors of Newalta Income Fund
The accompanying updated financial forecast of Newalta Income Fund
(the "Corporation") consisting of the consolidated balance sheet
as at December 31, 2002 and consolidated statements of income and
retained earnings and cash flows for the year ended December 31,
2002 has been prepared by management using assumptions with an
effective date of March 14, 2002. We have examined the support
provided by management for the assumptions and the preparation and
presentation of this updated forecast. Our examination was made
in accordance with the applicable Auditing Guidelines issued by
The Canadian Institute of Chartered Accountants. We have no
responsibility to update this report for events and circumstances
occurring after the date of our report.
In our opinion:
* As at the date of this report, the assumptions developed by
management are suitably supported and consistent with the plans
for the Corporation and provide a reasonable basis for the updated
forecast;
* This updated financial forecast reflects the assumptions; and
* The updated financial forecast complies with the presentation
and disclosure standards for forecasts established by The Canadian
Institute of Chartered Accountants.
Since the updated financial forecast is based on assumptions
regarding future events, actual results will vary from the
information presented and the variations may be material.
Accordingly, we express no opinion as to whether this updated
forecast will be achieved.
March 14, 2002 (signed) Deloitte & Touche LLP
Calgary, Alberta Chartered Accountants
/T/
Newalta Income Fund
UPDATED FINANCIAL FORECAST
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31
($000's)
------------------------------------------------------------------------
2002 2002
2001 Previous Updated
Actual Forecast Forecast
audited unaudited unaudited
------------------------------
ASSETS
Currents assets
Cash - 525 -
Accounts receivable 20,330 21,600 26,500
Inventory 4,645 4,320 5,000
Future income tax 4,000 2,025 4,000
------------------------------
28,975 28,470 35,500
Capital assets 189,576 179,524 192,800
Goodwill 13,687 9,322 13,700
------------------------------
232,238 217,316 242,000
------------------------------
------------------------------
LIABILITIES
Current liabilities
Bank indebtedness 10,374 - -
Accounts payable 12,661 9,304 14,500
Current portion of long-term debt 15,273 60 15,100
------------------------------
38,308 9,364 29,600
Long-term debt 45,080 42,000 9,400
Debentures 3,000 - 3,000
Future income taxes 29,779 33,158 37,800
Site restoration 2,308 2,515 2,400
------------------------------
118,475 87,037 82,200
------------------------------
SHAREHOLDERS' EQUITY
Share capital 69,481 67,181 98,600
Retained earnings 44,282 63,098 61,200
------------------------------
113,763 130,279 159,800
------------------------------
232,238 217,316 242,000
------------------------------
------------------------------
Newalta Income Fund
UPDATED FINANCIAL FORECAST
CONSOLIDATED STATEMENTS OF INCOME & RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31
($000's)
------------------------------------------------------------------------
2002 2002
2001 Previous Updated
Actual Forecast Forecast
audited unaudited unaudited
------------------------------
Revenue 92,960 108,000 114,000
------------------------------
Expenses
Operating 60,837 67,500 71,500
General and administrative 2,070 3,000 2,800
Interest 3,493 2,930 2,000
Depreciation and amortization 9,100 10,900 11,500
Takeover and reorganization costs 2,528 - -
------------------------------
78,028 84,330 87,800
------------------------------
Operating income 14,932 23,670 26,200
Provisions for income taxes
Current 489 1,000 600
Future 4,204 7,170 8,700
------------------------------
10,239 15,500 16,900
Net earnings
Retained earnings, beginning of year 34,999 47,598 44,300
Reduction from share buy back (956) - -
------------------------------
Retained earnings, end of year 44,282 63,098 61,200
------------------------------
------------------------------
Earnings per share (cents) 31 46 41
------------------------------
------------------------------
Diluted earnings per share (cents) 31 46 41
------------------------------
------------------------------
Newalta Income Fund
UPDATED FINANCIAL FORECAST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
($000's)
------------------------------------------------------------------------
2002 2002
2001 Previous Updated
Actual Forecast Forecast
audited unaudited unaudited
------------------------------
NET INFLOW (OUTFLOW) OF CASH RELATED TO
THE FOLLOWING ACTIVITIES:
Operating
Net earnings 10,239 15,500 16,900
Items not requiring cash
Depreciation and amortization 9,100 10,900 11,500
Future income taxes 4,204 7,170 8,700
Stock compensation - - 500
------------------------------
Cash flow from operations 23,543 33,570 37,600
Increase in operating net assets (4,706) (2,907) (4,500)
------------------------------
18,837 30,663 33,100
------------------------------
Investing
Additions to capital assets (27,804) (24,000) (14,500)
Acquisition of Anadime, including bank
indebtedness. (4,620) - -
Net proceeds on sale of capital assets 84 - -
Site restoration (136) (150) (300)
------------------------------
(32,476) (24,150) (14,800)
------------------------------
Financing
Issuance of common shares 23 - 28,000
Repurchase of common shares (2,685) - -
Increase (decrease) in long-term debt 5,036 (60) (35,900)
------------------------------
2,374 (60) (7,900)
------------------------------
Net cash inflow (outflow) (11,265) 6,453 10,400
Cash (bank indebtedness), beginning of
year 891 (5,928) (10,400)
------------------------------
Cash (bank indebtedness), end of year (10,374) 525 -
------------------------------
------------------------------
/T/
Newalta Income Fund
Notes to the Updated Forecast
For the year December 31, 2002 ($000's)
Unaudited
1. Purpose of the Updated Forecast
On May 15, 2001, Newalta Income Fund (the "Corporation") published
a financial forecast for the year ended December 31, 2002.
Subsequently, certain of the assumption's changed as follows:
* Crude oil prices (WTI) have decreased.
* Heavy oil netbacks have increased.
* The acquisition of Anadime Corporation on August 20, 2001.
* The adoption of new accounting principles resulting in no
amortization of goodwill.
* Lower capital expenditures.
* The effects of the renegotiated credit facility.
* The effects of stock compensation.
* The effects of the equity issue announced March 14, 2002.
This forecast has been prepared by management of the Corporation
to update the assumptions, as described above, for use by
investors in the evaluation of the Corporation's business plan for
the year ending December 31, 2002, and may not be appropriate for
any other purpose.
2. Basis of Presentation of Updated Forecast
The updated forecast has been prepared using assumptions that
reflect management's intended course of action for the year
covered, given management's judgment as to the most probable set
of economic conditions. The updated forecast will be compared
with the reported results for the updated forecast year, and any
significant differences will be reported and discussed by
management. The actual results achieved during the forecast year
will vary from the updated forecast results and these variations
may be material. The updated forecast has been prepared by
management using assumptions with an effective date of March 14,
2002.
3. Significant Accounting Policies
* The accompanying updated forecast of the Corporation have been
prepared in accordance with Canadian generally accepted accounting
principles. These updated forecast consolidated financial
statements and the notes thereto should be read in conjunction
with the Corporation's financial statements for the year ended
December 31, 2001 and the 2001 Renewal Annual Information Form.
4. Significant Assumptions
The Corporation has two reportable segments. The Conventional and
Heavy Oilfield segment recovers and resells crude oil from
oilfield waste. The Industrial and Oil Recycling segment collects
waste lubricating oil, automotive, and industrial wastes in
western Canada, which are processed by the Company into
re-saleable products.
The updated forecast give effect to the following assumptions:
* Product pricing:
Crude oil prices (WTI) are expected to average $22.00 US per
barrel.
Netbacks from the sale of heavy crude oil (Lloyd blend) are
expected to average $18.00 US per barrel.
Oil recycling product prices, which vary in relation mainly to
propane and diesel prices, are expected to remain relatively
stable during the forecast year.
* Volumes:
Conventional and Heavy Oilfield waste volumes are expected to
increase due to the impact of 2001 capital expenditures.
The collection of waste lube oil is expected to remain stable at
50 million liters per year.
* Revenues:
The forecast revenue growth is expected to be approximately 23% in
2002, which results from the following:
- The facilities acquired in the purchase of Anadime Corporation
will generate incremental revenues of approximately 10% of 2001
revenue.
- Revenue increases from the normal development of existing
markets and volumes are expected to be offset by the decline in
revenues from lower commodity prices.
- Capital expenditures, which support the development of new
markets, for example waste water and sludge processing, are
expected to add 13% to revenue in each year.
* Operating costs:
As the majority of operating costs are fixed, operating costs as a
percent of revenue will decline as revenue increases. Operating
costs are expected to return to the levels experienced from 1993
to 1997 and are expected to be 62.7% of revenue in 2002.
* Depreciation and amortization:
No changes are forecast to existing accounting policies for
depreciation and site restoration. Fixed assets will increase by
$14,500 in 2002, and related depreciation is recognized in
accordance with the Corporation's policies.
In accordance with changes to general accounting principles
beginning January 1, 2002, amortization of goodwill will no longer
be expensed on a regular basis. Instead, the underlying value of
the goodwill carried on the Corporation's books will be assessed
annually. It is assumed that no impairment in goodwill will occur
during the forecast year.
* General and administrative:
General and administrative costs will increase as a result of $0.5
million in stock compensation expense based on a forecasted market
weighted average price of $5.00 per share.
* Income taxes:
Capital taxes are forecast at current rates and are expected to be
$500 in 2002. Future income taxes are forecast at the reduced
future tax rates. This updated forecast assumes the Alberta
Government reduces provincial income tax rates as proposed in the
Government's recent pronouncements.
* Working capital:
Accounts receivable, accounts payable, and inventories fluctuate
with expected revenue, activity levels, and operating costs.
* Capital expenditures:
During the second half of 2001 approximately $35,000 was spent on
growth capital projects. The additional revenue from these
projects commences during the forecast year. Forecast capital
expenditures during 2002 will be $14,500. Major growth projects
to be undertaken include:
- The expansion and upgrade of the Hughenden facility;
- Development of process technologies, including solids
processing, waste-water reprocessing, frac-sand recycling, and
dangerous oilfield waste solids recovery; and
- Industrial waste-water/sludge collection, processing, and
disposal.
Capital expenditures of $14,500 in 2002 will not contribute to
revenue and earnings until 2003 and thereafter. If these capital
expenditures were excluded from this updated forecast, the
resulting interest and depreciation savings would increase 2002
earnings per share by two cents.
* Long-term debt:
The Corporation has a credit facility mainly comprised of two
segments:
- $60,000: Revolving reducing term bearing interest at prime plus
1/4% per annum or at the Bankers Acceptance plus 21/4% per annum
at the Corporation's option.
- $12,000: Demand revolving, bearing interest at prime plus 1/2
per annum or at the Bankers Acceptance plus 2% per annum at the
Corporation's option.
Principal repayment of $1,250 per month commence in January 2002.
In the forecast year it is assumed that the terms of the credit
facility will remain unchanged.
Annual interest expense on long-term debt is expected to average
5% during the forecast year.
* Debentures
For forecast purposes it is assumed that the debentures are not
converted in 2002 and are converted in 2003 into 522,000 common
shares.
* Stock option plan:
As of March 14, 2002, there are 2,961,000 options outstanding at
exercise prices ranging from $2.05 to $8.40 per share. On March
17, 2002, 346,000 options are expected to expire. As no options
below $7.50 expire in 2002, it is assumed for forecast purposes
that no options will be exercised.
* Diluted earnings per share:
Diluted earnings per share are calculated using the treasury
method and a forecasted market weighted average price of $5.00 per
share.
* Geographic expansion plans:
The planned expansion into eastern Canada in 2002 would provide
additional revenue and earnings. Due to the uncertainties with
respect to acquisitions, purchase price, and returns, the
potential impacts of these initiatives have not been included in
this updated forecast.
* Normal course issuer bid:
The updated forecast assumes no purchase of the Company common
shares pursuant to the Company's normal course issuer bid.
* Share capital
The updated forecast assumes that the equity issue, including the
underwriter's option, announced on March 14, 2002 will be fully
subscribed for 8,219,179 common shares generating net proceeds of
approximately $28.0 million ($28.6 million after tax). For the
purpose of the updated forecast, the net proceeds have been
applied to bank indebtedness and long-term debt.
Share capital also includes $0.5 million of contributed surplus
related to stock compensation.
For further information: Newalta Income Fund - Ronald L. Sifton, Senior Vice President, Finance and Chief Financial Officer, (403) 266-6556; Website: www.newalta.com